The Independent Market Observer

Monday Update: More Signs of Slowing Growth

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on May 1, 2017 2:10:21 PM

and tagged In the News

Leave a comment

monday updateAlthough demand for housing remains strong, last week’s economic data was generally downbeat, suggesting growth is moderating and that chances for a near-term acceleration may be passing. Although general levels of activity remain expansionary, it was a disappointing week overall—and one that starts to call into question future growth.

A look at last week’s data

The good news is that housing demand continues to be strong—in large part because prices are affordable. New home sales data for March beat expectations, rising to 621,000, the second-highest level since 2008. This was up from 587,000 sales the previous month and well above expectations of 584,000. Good weather and a lack of existing home supply continue to drive the new home industry.

Other news was less positive. Consumer confidence registered a larger-than-expected drop, from 124.9 in March, which was a downward revision, to 120.3 in April. Despite this negative surprise, the Conference Board’s Consumer Confidence Survey remains near a 16-year high. Good labor market conditions, low gas prices, and recent stock market performance have supported consumers’ confidence in the current environment. The April decline does not fully reverse a surge in March, and confidence remains at the second-highest level since December 2000. The drop likely represents a normalization after the post-election rally.

On Thursday, the durable goods orders report gave us a look at business demand. The news was mixed, as headline orders dropped by more than expected, from growth of 2.3 percent in February (upwardly revised from 1.8 percent) to 0.7 percent in March. Core orders, on the other hand, which exclude transportation, fell by 0.2 percent, down from an upwardly revised 0.7-percent gain in February. Although the annual trends continue to be positive, the weakness, particularly in core orders, is worrisome.

Perhaps the most anticipated news last week was the first estimate of economic growth for the first quarter of 2017, which was released on Friday. This report was a disappointment as well: growth dropped to 0.7 percent for Q1, down from 2.1 percent in the fourth quarter of 2016. A slowdown in car sales and weak demand for utilities during the warm winter contributed to the contraction. The good news is that these factors are likely transitory, so the decline isn’t necessarily a signal of slowing growth for 2017.

The week ahead

This week is a big one for economic data, with many important reports coming due.

Today, the personal income and spending reports showed how American workers are making and spending their money. Income growth continued in March, up 0.2 percent against expectations for 0.3-percent growth. The previous month was revised downward from 0.4 percent to 0.3 percent. Personal spending was flat, for the second month in a row, and fell below expectations of 0.2-percent growth. Weak spending growth, despite rising income, is a sign that high levels of confidence have yet to translate into consumer behavior.

Also released today, the ISM Manufacturing Index, which tracks expectations of companies that make stuff, dropped from 57.2 to 54.8, well below expectations for a smaller drop to 56.5. Numbers over 50 indicate expected expansion, however, so these companies continue to anticipate growth. Though this indicator remains healthy, the decline may mean that further acceleration is less likely.

On Wednesday, the ISM Non-Manufacturing Index, which tracks the service sector, is expected to increase, from 55.2 to 56.0, which would suggest further economic acceleration. If it does increase, it could help offset the decline in the manufacturing survey.

On Thursday, the international trade balance is expected to worsen slightly on a drop in industrial exports, from a deficit of $43.6 billion in February to $45.2 billion in March. Still, this would be in line with previous results.

Finally, and most important, the employment report on Friday is expected to show significantly faster job growth in April over a weak result in March, rising from 98,000 to a more normal 193,000 as weather effects reverse. Wage growth should increase slightly, from 0.2 percent to 0.3 percent. If the data comes in as expected, it will ease concerns about last month’s performance and suggest that the economy may continue to improve.

Have a great week!

  Subscribe to the Independent Market Observer

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®